Practice Ch. 10, 11, 12, 13

. When an economy experiences stagflation, it is usually caused by a: A) a negative demand shock. B) a positive supply shock. C) a negative supply shock. D) a positive demand shock

C

An increase in government spending on health care is likely to shift the: A) short-run aggregate supply curve to the right. B) short-run aggregate supply curve to the left. C) aggregate demand curve to the right. D) aggregate demand curve to the left.

C

A recessionary gap can be closed with: A) contractionary monetary policy. B) an increase in taxes. C) a decrease in government purchases. D) expansionary fiscal policy.

D

An aggregate output level lower than potential output means: A) low inflation. B) high inflation. C) low unemployment. D) high unemployment

D

If GDP is smaller than planned aggregate spending, then: A) unplanned inventory investment is positive. B) GDP will fall. C) the economy is in equilibrium. D) unplanned inventory investment is negative.

D

If the MPS = .1, then the value of the multiplier equals: A) 1. B) 5. C) 9. D) 10.

D

Public debt is: A) the total debt owed by the government to individuals and institutions outside of government B) the total amount that the government owes during a given fiscal year. C) likely to increase when the government uses contractionary fiscal policy. D) the amount that the government owes itself.

A

Raising taxes shifts the: A) aggregate demand curve to the left. B) long-run aggregate supply curve to the left. C) aggregate demand curve to the right. D) short-run aggregate supply curve to the left.

A

Social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

A

Stagflation is a combination of: A) increasing unemployment and increasing inflation. B) decreasing unemployment and decreasing inflation. C) increasing unemployment and decreasing inflation. D) decreasing unemployment and increasing inflation

A

Suppose the MPC = 0.8. If the government were to cut taxes by $100 billion, then real GDP would increase by $400. A) True B) False

A

In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) What is the government budget balance?

1.5 TRILLION

In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) How much is private saving?

3.5 TRILLION

. The short-run aggregate supply curve may shift to the right if: A) productivity increases. B) nominal wages increase. C) personal income taxes decrease. D) commodity prices rise.

A

A budget surplus would exist when which of the following occurs? A) Taxes are greater than government spending. B) Taxes are less than government spending. C) Taxes are less than government spending plus investment. D) Investment is less than government spending less taxes.

A

According to the "savings-investment spending identity": A) savings = investment spending B) government spending = tax receipts C) total income = consumption spending + savings D) savings = investment spending + consumption spending

A

During a recessionary gap: A) holding everything else constant, the budget deficit would increase. B) contractionary fiscal policy would help correct this problem. C) an increase in taxes or a decrease in government purchases would shift the AD curve to the right. D) unemployment would most likely be falling.

A

Government borrowing will not crowd out private investment spending if: A) unemployment is high and the fiscal expansion causes an increase in incomes and saving at each interest rate. B) unemployment is high and the fiscal expansion causes an increase in incomes and a decrease in saving at each interest rate. C) unemployment is low and the fiscal expansion causes an increase in incomes and a decrease in saving at each interest rate. D) unemployment is low and the fiscal expansion causes a decrease in incomes and a decrease in saving at each interest rate.

A

If the economy is currently in a recessionary gap, real GDP will be ________ potential output. A) below B) the same as C) above D) in equilibrium with

A

In the long run, the aggregate price level has: A) no effect on the quantity of aggregate output. B) a positive effect on the quantity of aggregate output. C) a negative effect on the quantity of aggregate output. D) an impact on aggregate output but no impact on employment

A

Nominal wages are "sticky" because: A) in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment. B) in the long run these payments remain fixed thereby increasing the profitability of the firms. C) in the short run these payments are slow to fall when there are labor shortages and slow to rise even when there is significant level of unemployment. D) in the long run all wages become adjusted for inflation.

A

Suppose the economy is operating in long-run equilibrium. If a positive demand shock hits the economy, we would expect: A) a short-run increase in real GDP and price level, and a long-run decrease in real GDP and an increase in price level. B) a short-run increase in real GDP and price level, and a long-run increase in real GDP and an increase in price level. C) a short-run increase in real GDP and price level, and a long-run decrease in real GDP and a decrease in price level. D) a short-run increase in real GDP and price level, and a long-run increase in real GDP and a decrease in price level.

A

The multiplier effect of government purchases of goods and services: A) has a more direct and bigger impact than an equal amount of tax changes. B) has a less direct and smaller impact than an equal amount of tax changes. C) is a type of automatic stabilizer. D) is useful for recessions but not for inflations.

A

(Scenario: Open Economy S = I) How much is the net capital inflow? A) $1 trillion B) $2 trillion C) $3 trillion D) $4 trillion

B

All of the following will increase the economy's potential output EXCEPT: A) an increase in physical capital. B) a decrease in the aggregate price level. C) an increase in human capital. D) technological innovation.

B

Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is: A) upward sloping. B) vertical. C) horizontal. D) downward sloping.

B

If planned investment spending is $2 trillion and inventories decrease by $0.5 trillion then, actual investment spending is: A) $2.5 trillion. B) $1.5 trillion. C) $2 trillion. D) impossible to determine without more information

B

If the MPC is 0.8, then the multiplier is: A) 4. B) 5. C) 8. D) 10.

B

Income-expenditure equilibrium GDP is: A) the level of GDP at which the unemployment rate is zero. B) the level of GDP at which GDP equals planned aggregate spending. C) the level of GDP at which there are no savings. D) the level of GDP at which autonomous consumption equals planned inventory investment.

B

Medicaid, Medicare, and Social Security are examples of: A) unilateral payments. B) transfer payments. C) monetary policy. D) taxes.

B

Net capital inflows equal: A) national savings. B) imports minus exports. C) consumption. D) consumption plus government spending.

B

Planned investment spending: A) is positively related to the interest rate. B) is negatively related to the interest rate. C) is independent of the interest rate. D) moves in the same direction as does the market interest rate.

B

States that are required by their constitution to have annually balanced budgets are likely to: A) have less severe business cycles than those not required to balance their budget. B) have more severe business cycles than those not required to balance their budget. C) grow faster than those not required to balance their budget. D) have a better quality of life than those not required to balance their budget.

B

The MPS plus the MPC must equal: A) zero. B) one. C) income. D) saving

B

The federal government's largest source of tax revenue is: A) property taxes. B) personal income and corporate profit taxes. C) sales taxes. D) social insurance taxes

B

Which of the following is an automatic stabilizer? A) military spending on the war in Iraq B) unemployment compensation payments to unemployed autoworkers C) disability payments to war veterans D) Medicare payments to the elderly

B

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $850 billion, which of the following policies would bring the economy to potential output? A) Increase taxes by $50 billion. B) Increase taxes by $10 billion. C) Increase taxes by $12.5 billion. D) Increase transfers by $12.5 billion.

C

Crowding out is a phenomenon: A) where an increase in government's budget surplus decreases the overall investment spending. B) where overproduction in the goods market leads to a sharp drop in the aggregate price level. C) where an increase in government's budget deficit causes the overall investment spending to fall. D) where an increase in imports causes the overall domestic production to fall.

C

Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The investment multiplier is: A) 8. B) 10. C) 4. D) 0.25.

C

Suppose the economy is operating at an output level of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. Which of the following would be required to close this recessionary gap? A) a $25 billion increase in government spending B) a $25 billion increase in taxes C) a $250 billion increase in government spending D) a $1,000 billion increase in government spending

C

The marginal propensity to consume is: A) increasing if the marginal propensity to save is increasing. B) the proportion of total disposable income that the average family consumes. C) the change in consumer spending divided by the change in aggregate disposable income. D) the change in consumer spending less the change in aggregate disposable income.

C

The savings-investment spending identity says that savings and investment spending are: A) always equal because private savings match government savings. B) equal as long as there is no trade surplus or deficit. C) always equal for the economy as a whole. D) equal as long as there is not government budget deficit or surplus.

C

Time lags in the implementation of fiscal policy: A) make it easier for policy makers to effectively use fiscal policy. B) render such policies useless in combating recessions. C) must be considered by policy makers in the implementation of fiscal policy. D) are less problematic than those facing monetary policy.

C

When David has no income, he spends $500. If his income increases to $2,000, he spends $1,900. Which of the following represents his consumption function? A) C = 1.2 × YD. B) C = 0.95 × YD. C) C = $500 + 0.7 × YD. D) C = $500 + 1,000 × YD.

C

Which of the following is an example of investment spending? A) The owner of a Domino's Pizza store has employed two students to deliver pizzas. B) The manager of a local Domino's Pizza store has taken some cash to the bank to make a deposit. C) A local Domino's Pizza store has purchased a new pizza oven. D) The owner of the Domino's Pizza store has used some of her salary to buy shares of stock in the Domino's corporation.

C

Which of the following would likely cause the short-run aggregate supply curve to shift to the left? A) a decrease in consumer spending B) a decrease in the price of imported oil C) an increase in the price of imported oil D) an increase in consumer spending

C

Which one of the following represents the government budget balance most accurately? A) T + G + TR B) T + G - TR C) T - G - TR D) T + TR - G

C

If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____. A) increase government purchases; AD; left. B) increase transfer payments; AS; right. C) increase tax rates; AD; right. D) increase government purchases; AD; right.

D

In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. 12. (Scenario: Closed Economy S = I) How much is investment spending? A) $3.5 trillion B) $3 trillion C) $2.5 trillion D) $2 trillion

D

The _______ the _______, the _______ the multiplier. A) smaller; level of wealth; bigger B) bigger; MPS; bigger C) bigger; MPC; smaller D) bigger; MPC; bigger

D

The long-run aggregate supply curve is: A) upward sloping. B) downward sloping. C) horizontal. D) vertical.

D

Transactions costs are: A) the return to the entrepreneur. B) the return to moving a product to market. C) the expenses of producing a product. D) the expenses of negotiating and executing a deal

D

Which of the following is NOT one of the three tasks of a financial system? A) transactions costs reduction B) risk management C) provide liquidity D) determining fiscal policy

D

Which of the following is considered an act of investing in a physical asset? A) purchasing shares of stock in IBM B) selling shares of stock in IBM C) buying a bond issued by IBM D) buying a new factory that produces IBM handheld devices

D

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds. A) upward; savers; increasing B) upward; investors; decreasing C) upward; savers; decreasing D) downward; investors; increasing

c